* Amanda Kass looks at the bill backlog. You can skim this first part if you are already well-versed in the budget impasse…
I estimated that the state’s General Fund spending was $32.8 billion in FY2016*, which was only about 7% less than the last “normal” year, FY2015. In other words, during the two-year impasse, most of the state’s spending was still legally authorized for a variety of reasons.
Even though most state spending was legally authorized in FY2016 and FY2017, the state didn’t actually have enough revenue to pay all its bills, so a backlog built up—leaving a growing number of vendors with state contracts in the lurch. Imagine trying to keep your business afloat while waiting years to receive payment for services already rendered. Instead of just holding onto the bills, some of these vendors turned to third-parties to offload this debt. Vendors are able to do this because of the Vendor Payment Program (VPP), which then Governor Pat Quinn created in 2011.** Under the VPP, a vendor sells its debt to another entity (known as a “Qualified Purchaser”), and this provides the vendor the cash it needs to keep operating. The state incurs a penalty charge when it pays bills late, and the interest rate is 9% or 12% depending on the underlying service. The Qualified Purchaser gets the interest penalty fees when the underlying bill is eventually paid by the state.
* OK, so now that you have the background, let’s move forward…
Importantly though, the VPP is only for bills that are for legally authorized spending, and the program was suspended in 2015 during the budget impasse. In 2016, Governor Bruce Rauner created the Vendor Support Initiative (VSI), which is just like the VPP except it’s for bills for which “no appropriation or other legal authority currently exists to pay the invoice.” This brings me to my first head scratcher: how was the Governor able to unilaterally create this program? Moreover, how were bills allowed to stack up if there was no legal authority to spend money on those goods and services? Remember, during the impasse most state spending was legally authorized, and several court cases occurred specifically to hash out whether spending on specific aspects of the state government (for items like state employee payroll) could continue.
That first question is a very good one. How could the governor unilaterally create this new Vendor Support Initiative, which deleted the previous requirement for an actual appropriation? The state constitution is clear that no expenditures can be made without an appropriation. Also, why were some vendors allowed into VSI and others weren’t? I suspect that some were simply more “important” to the governor than others (Dept. of Corrections vendors vs. human service providers).
The answer to the second question about how the bills were allowed to stack up is fairly straight-forward: During the long impasse, the Rauner administration convinced some crucial vendors (particularly Department of Corrections and human service providers) that they’d eventually get paid. So, those vendors kept providing their goods and services - or new vendors were brought in if somebody dropped out. And some of those same vendors (Corrections) were enticed to stick around by unilaterally deeming them qualified for late payment interest benefits in Rauner’s new Vendor Support Initiative, which means they could also sell their debts to Qualified Purchasers without a formal appropriatioin.
* Back to Ms. Kass…
This brings me to my final set of questions: Which vendors have sold off their bills, and how many bills have Qualified Purchasers bought? This should be relatively straightforward to figure out because Qualified Purchasers are required to submit monthly reports detailing this information. Nearly a year ago I submitted a Freedom of Information Act request to the Department of Central Management Services (CMS) asking for those reports from April 2011 through May 2017 for all Qualified Purchasers (QP). What I got back seemed like incomplete records and didn’t align with previous reporting done by Dave McKinney. For example, the records I received for Payplant (a QP) showed it hadn’t bought any bills, while McKinney reported that Payplant purchased $475,330 worth of bills between November 2015 and August 2016. I also didn’t receive any reports for Illinois Financing Partners (another QP), which Pierog reports has purchased $1 billion worth of receivables since 2015. I sent several follow-up emails to CMS and even asked the Public Access Counselor (which is part of the Attorney General’s office) to review CMS’s response, but never heard back from either entity.
Sounds like Comptroller Mendoza needs to look at this issue as part of her budgetary transparency initiatives.
…Adding… From Rep. Stephanie Kifowit (D-Oswego)…
Hi Rich, I just read your post on the VSI program. I have actually been critical Of the new program under the Rauner administration since it was changed from VPP and effectively removed the Comptroller from the equation. As Vice Chair of General Services I have been on the record, and directly asked questions to the qualified purchasers of the legitimacy of the new program. My concerns were routinely rebuffed by CMS. I’m glad this situation is finally being brought to light.
- Ozzie Smith - Monday, May 7, 18 @ 12:55 pm:
Looks like she, BGA and others are doing just that…SB 3560. Disclosure, audit, etc. of VPP and non-approp VSI.
- Ok - Monday, May 7, 18 @ 12:55 pm:
IG should also look into what some of the determining factors were in which vendors got in and which didn’t
- Norseman - Monday, May 7, 18 @ 12:55 pm:
I’ve been questioning the legality of a lot of the expenditures and actions Rauner took during the impasse. Like many issues with government, the innocent suffer the bad decisions of the politicians.
- Barrington - Monday, May 7, 18 @ 12:59 pm:
I’ve often suspected Edgar’s support of Rauner had to do with IFT
- Anonymous - Monday, May 7, 18 @ 1:04 pm:
Follow the money…..
- Barrington - Monday, May 7, 18 @ 1:05 pm:
I met one of these small vendors that did not get paid or accepted into the VSI program. They ended up applying for Medicaid to get health insurance. Not sure if or when they ever got paid.
- titan - Monday, May 7, 18 @ 1:06 pm:
If one looks at old case law, there is a lot of legal authority to say that a contract with a public body for which thee is no prior appropriation is void (and the governmental body would not be authorized, and could not be forced, to pay it - even if goods or services were already provided).
- Northsider - Monday, May 7, 18 @ 1:09 pm:
A Kass doing actual Journalism.
Will wonders never cease?
- Claud Peppers - Monday, May 7, 18 @ 1:15 pm:
The US Dept of Justice should be looking into this.
- Annonin' - Monday, May 7, 18 @ 1:24 pm:
“A Kass doing actual Journalism.”
Actually when actually journalism was bein’ done it was done about 2.5 years ago. The governor gets to do what he wants cause there are some guys who know some banks that are willin’ to make some fake loans to spread cash around. Might also help who is owed the cash.
- Anonymous - Monday, May 7, 18 @ 1:31 pm:
Obviously two plus years is a long time, but remember when Blago and the legislature couldn’t agree on a budget and it wasn’t signed until mid-July? Should the state have cancelled all contracts then? Service providers, vendors, everything? Leases for offices, equipment, vehicles, everything? Contracts to purchase food for prisoners, health insurance for employees, everything?
Not having a budget is a big deal, and not having a budget should be painful. But how painful and when the pain should start are still open questions.
- gjw34pg90 - Monday, May 7, 18 @ 1:49 pm:
Let’s skip some of the how and go to the why. Under VPP, the vendor submits the invoice, agency approves for payment, then sends to Comptroller and it sits in the queue. The Comptroller represents to the Qualified Purchaser that it is valid for payment, after verifying the contract and checking for offsets, that is, other monies owed to the state like back taxes. Now under VSI, the Comptroller portion is mostly eliminated. Also, VPP was set-up under Dems and the primary Qualified Purchaser was a Dem connected company. So now, VSI and the Gov’s folks get to choose new Qualified Purchasers.
Edgar somehow didn’t take the fall for the whole MSI scandal and the current Gov may avoid taking the hit for this one, but this is seriously unethical and wrong.
- wordslinger - Monday, May 7, 18 @ 3:51 pm:
–How could the governor unilaterally create this new Vendor Support Initiative, which deleted the previous requirement for an actual appropriation? The state constitution is clear that no expenditures can be made without an appropriation. Also, why were some vendors allowed into VSI and others weren’t?–
I think it’s what the sharpies call an illegal slush fund for favored cronies.
Anyone with some authority want to get on this or what?
- Chicago Cynic - Monday, May 7, 18 @ 4:08 pm:
This stinks to high heaven. Perhaps Rep. Kifowit can get with leadership, convene hearings, force disclosure and get the AG to sue if necessary. We need to get to the bottom of this.
- Power House Prowler - Monday, May 7, 18 @ 4:28 pm:
Well. I had discussions about buying from a vendor you knew the state had no intention of paying. Does this not violate the ethics laws that all state employees have to sign after they take the mandatory training every year?
- Arthur Andersen - Monday, May 7, 18 @ 4:30 pm:
gjw, your argument might make sense if the “Dem-controlled company” had not been a major participant in the VSI, which it was.
Nice try, though.
Also, the #1 participating vendor in the programs, with over $1 billion of a/r sold, was, wait for it…Health Alliance.
I mean, if you’re looking for who let this happen, grab an org chart of State government. Who didn’t let it happen?
- sharkette - Monday, May 7, 18 @ 5:05 pm:
Correct facts:
Interest paid is 1% after 90days.
The comptroller holds payable until 90 days.
When a vendor sells a receivable to 3rd party under VPP.
the 3rd party pays the vendor 90% on the sale.
Keep in mind these deals are generally sold at 3 or 4% margin or they would not have won the bid.
- Arthur Andersen - Monday, May 7, 18 @ 5:41 pm:
I would be remiss if I didn’t point out the excellent and thorough work performed by Amanda Kass on this project.
Nice job, Amanda.
- ponzie - Monday, May 7, 18 @ 5:48 pm:
how much was madigian involved
- RNUG - Monday, May 7, 18 @ 5:58 pm:
== Interest paid is 1% after 90days. ==
That is 1% per month.
9% annual for the first 12 months.
12% annual for the second 12 months.
- Jones - Monday, May 7, 18 @ 6:24 pm:
Isn’t it also Constitutional that the state have a balanced budget? Hasn’t had one of those this century.
- S Kifowit - Monday, May 7, 18 @ 10:25 pm:
Happy to bring this to light. We did have subject matter hearings on the issue. The then Comptroller testified that prompt payment began when her office received the invoice; CMS believed it was the date of the invoice under VSI. I can pull out my files if anyone is interested.
- Demoralized - Tuesday, May 8, 18 @ 8:41 am:
The prompt pay clock starts on the date the agency accepts receipt of a valid invoice.